Correlation Between IShares MSCI and SP 500

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and SP 500 at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IShares MSCI and SP 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares MSCI Japan and SP 500 VIX, you can compare the effects of market volatilities on IShares MSCI and SP 500 and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IShares MSCI with a short position of SP 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and SP 500.

Diversification Opportunities for IShares MSCI and SP 500

-0.42

Correlation Coefficient

IShares MSCI  SP 500

Very good diversification

The 3 months correlation between IShares and VILX is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Japan and SP 500 VIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 VIX and IShares MSCI is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on iShares MSCI Japan are associated (or correlated) with SP 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP 500 VIX has no effect on the direction of IShares MSCI i.e., IShares MSCI and SP 500 go up and down completely randomly.

Pair Corralation between IShares MSCI and SP 500

Assuming the 90 days trading horizon IShares MSCI is expected to generate 89.31 times less return on investment than SP 500. But when comparing it to its historical volatility, iShares MSCI Japan is 69.25 times less risky than SP 500. It trades about 0.04 of its potential returns per unit of risk. SP 500 VIX is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  315.00  in SP 500 VIX on October 1, 2024 and sell it today you would earn a total of  164,571  from holding SP 500 VIX or generate 52244.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

iShares MSCI Japan  vs.  SP 500 VIX

iShares MSCI Japan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Japan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

SP 500 VIX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SP 500 VIX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with IShares MSCI and SP 500

The main advantage of trading using opposite IShares MSCI and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, SP 500 can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SP 500 will offset losses from the drop in SP 500's long position.

The idea behind iShares MSCI Japan and SP 500 VIX pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.